StarHub – OCBC

Ups dividend payout

Decent 2Q07 results. StarHub Ltd (STH) reported a decent set of 2Q07 results. Revenue grew by about 10.1% YoY and 3.5% QoQ to S$489m. On the other hand, net profit rose 6.8% YoY and over 15.6% QoQ to S$80.8m. The reason for the sequential bottom-line strength was due to a low base effect in 1Q07 as the result of the recognition of deferred tax liability of S12.1m. A more reflective line would be at the pre-tax level and in that context it grew by about 12.2% YoY and 5.4% QoQ, broadly in line with top-line growth. In terms of EBITDA, it grew by 12.7% YoY and 3.8% QoQ to S$163.7m, again in line with revenue growth. More importantly, EBITDA margins improved QoQ from 35% to 35.3%. All segments did well with revenue improving at low single digit sequentially. Going forward, STH is guiding for a high single digit revenue growth with full year margin at 34%, implying more competitive pressures in 2H07. Finally, STH is revising up its quarterly dividend from 3.5 cents to 4.0 cents, implying FY07 dividend of 15.5 cents or an attractive yield of 5.6%.

Emphasis on higher value post paid. Mobile division continues to dominate group revenue contribution, making up 55% of total revenue in 2Q07. Post paid in turn contributed to over 74% of mobile revenue and is the more important segment. Over the last quarter, subscribers increased 48,000 QoQ to 1.63m. The bulk of which came from pre paid with post paid seeing a decline of 2,000. The reason for this was due to STH’s strategy to target higher end post-paid customers. This move appeared to have worked with slightly lower post-paid subscribers but with higher ARPU usage leading to higher overall revenue.

Broadband enjoyed increase in subscribers. This segment continued to enjoy low single digit sequential growth in subscriber numbers. About 5,000 new customers were added and at ARPU of about S$60/mth (flat QoQ). This in turn led to revenue growth of about 3% QoQ to S$62.1m.

Maintain BUY. We see STH as defensive, with steady albeit moderate growth, but with attractive dividend. STH has revised dividend policy from 3.5 cents to 4.0 cents per quarter. As such, FY07 and FY08 dividend will be at least 15.5 cents and 16.0 cents, respectively, giving yields of about 5.6% and 5.8%. In terms of rating and valuation, we maintain our S$3.24 fair value and BUY rating.

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